This is exactly what happened in Chicago, the third largest city in the United States by population. It started in 1833 as a village with 350 residents, only to become one of the world’s largest cities less than 200 years later, owing solely to major traffic routes.
History knows plenty of such examples. Successful investors are those who spot potential before it becomes apparent to others.
What do Europeans know about Ukraine today? They perceive it as a relic of the old Soviet empire with an unstable economy, ingrained corruption, low living standards and a poor investment climate. But what is the real situation one sees in looking beyond such stereotypes that are becoming less relevant with each day?
Let me first say that such stereotypes are being actively challenged by a team of reformers in Ukraine’s government, of which I am a member. Secondly, remember what Baron Rothschild once said: “Buy when everybody sells and sell when everybody buys.”
This statement has more meaning for investing in the Ukrainian economy than ever. Like many years ago, when only those first to stake a claim in the gold diggings of the Klondike River would succeed, in Ukraine the largest profits will be secured by those investors who are the first to enter the market.
Ukraine is in the middle of Europe. Its economy is today developing at a stable and sustainable rate, but is destined to become the world’s new “economic miracle.” The benefits of investing are obvious, simple and indisputable. For one, highly-developed neighboring markets have nearly exhausted their growth potential.
Our agriculture sector, meanwhile, is on the verge of a boom. Western Europe’s has reached its limits, with all agricultural land under cultivation. In contrast, Ukraine has hundreds of thousands of hectares waiting to be farmed and lots of livestock farms and dairy plants waiting to be built. It’s all there waiting for investors eager to capitalize on growing demand for food.
This example demonstrates the vast potential of just one sector of our economy. But the upside is also huge in other sectors, such as manufacturing, hydrocarbon extraction, machine building, heat power engineering, food processing and transportation.
Led by China, Asian economies currently lead in the global economic growth race. China benefits from its manpower resources and low labor costs. Ukraine, also rich in natural resources, has an advantage in bringing commodities to many markets: it is closer and thus cheaper to deliver.
Harvesting takes place in Mykolayiv Oblast. Ukraine has hundreds of thousands of hectares waiting to be farmed and lots of livestock farms and dairy plants waiting to be built. (Ukrinform)
Coupling Ukraine’s favorable geographic location with a well-developed railway system (something we expect to improve much upon soon), it takes only a couple of days to deliver goods from Ukraine to a Berlin shop or warehouse. How long would it take to deliver this good from China by sea?
The risks in Ukraine are often exaggerated. As Greece’s debt issues, Italy’s credit rating downgrades and social tensions in Spain continue shaking up the euro zone, investors’ assessments do not give grounds for any worries about the country’s solvency. Ukraine’s economy continues demonstrating a sustainable growth rate of 5 percent with an upward trend.
Industrial production has recently grown by more than 8 percent. The inflow of foreign capital in Ukraine over the first six months of 2011 reached $2.5 billion. While many investments in 2000-2004 targeted real estate, the focus is now shifting toward equity investments by non-residents. Industrial investments picked up by 13.5 percent over 2010.
Private hotel investments have almost doubled, rising by 125.6 percent during this period. Furthermore, doing business in Ukraine will get easier thanks to the government’s recent initiative to launch a so-called One-Stop Shop office to assist investors.
All of these factors, coupled with recent measures adopted by the government of President Viktor Yanukovych to improve the investment climate, such as deregulation, Ukraine is a suitable candidate for economic leadership in Eastern Europe. We expect Ukraine to be upgraded in the World Bank’s “Doing Business” annual ranking.
An important factor in assessing a country’s attractiveness for investment is the ease of starting a business. Completing paperwork needed to start a business is always a bottleneck. The “narrowest” places for foreigners to set up a company in Ukraine used to be the procedures for starting and closing a business and obtaining permits for export, import, construction, production, etc.
At the moment, many such regulations have been revoked or revised towards simplification. Out of 58,000 regulations, 35,000 (or 61 percent of the total) were found to be inconsistent with the principles of the state regulatory policy. The system is currently being restructured.
In addition to having borders with European Union countries and Russia, Ukraine has good access to the Black Sea and all the underlying benefits, such as development of offshore deposits in the Black Sea and major trade routes.
Ukraine operates a strong gas pipeline system and holds gas, oil, and coal deposits, which makes it one of the most promising players on the global market in deposit development and extraction.
Ukraine has excellent tourism prospects. It is hard to find a country that is home to so many attractive climate zones coupled with a rich historical heritage. Some of the most profitable investment opportunities for foreign capital lie in development of tourism infrastructure on the Black Sea coast and in the Carpathian Mountains.
Ukraine has an extensive pool of 20 million highly skilled professionals. The educational system is one of the strongest in Europe due to a rich legacy of teaching methodologies and techniques inherited from the Soviet Union, which, despite all the disadvantages of the communist regime, had one of the best technical education systems.
It should be no surprise, given Ukraine’s riches, that a number of large and fast-growing financial-industrial groups have emerged in Ukraine. Still, there is vast room for foreign investment to help unlock the nation’s great potential.
The world’s spotlight will soon be on Ukraine as it hosts the Euro 2012 football championship. Visiting foreign businessmen and investors will evaluate the economic prospects for starting and running a business here. What will they see?
They will see that Ukraine’s business opportunities are like a train standing on the tracks, ready to roll off on route to the “Ukrainian economic miracle.” Right now, this train is open for passengers. The engine is being repaired, lubricated. To enjoy the ride, all you have to do is jump on board before the train rolls off and seats run out.
The author, Andriy Klyuyev, is first vice prime minister of Ukraine.
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